Innovation is the in-vogue buzz-word these days, especially at the Department of Defense.

Dr. Ash Carter, Secretary of Defense, recently visited Silicon Valley in search of innovation.

The Hon. Frank Kendall, USD (AT&L) has announced a new initiative – Better Buying Power 3.0 – in order to mandate innovation.

The Pentagon announced it’s entering the venture capital business (via a company called In-Q-Tel) in order to invest in innovation.

We’ve written several articles on the topic, and we just finished speaking about it at the annual BDO/Public Contracting Institute Executive Seminar.

The concept of innovation is pervasive across not only the defense industrial base but also across the commercial industrial base. It’s a focal point in policy memos and on everybody’s lips in policy speeches.

It’s everywhere.

So let’s all agree that innovation (and the related notion of agile development) is the current end-goal in the minds of DoD policy-makers, as elusive as it may be for them to achieve.

We’ve written several articles about innovation and now we’ve publicly spoken about it. (In our biased viewpoint, the speech was very well received and generated lots of interest.) It’s not that we claim any special expertise; it’s that we have now seen (first-hand) what innovation and agility looks and feels like. And thus our experience informs our opinion on the topic. Unlike many others searching for innovation, we know whereof we speak. So there’s a sense of a moral imperative to point out the challenges inherent in obtaining what the DoD policy-makers say they want.

In our articles and in our remarks we’ve mostly expressed skepticism and doubt that innovation actually can be achieved by the Pentagon bureaucrats and policy wonks. Fundamentally, we don’t think you remove process barriers by adding more processes. Looking at the various stakeholders, we don’t think the stars are aligned (as they were in the mid-1990’s) such that Congress is ready to willingly repeal statutory requirements it has imposed on defense contractors. Similarly, we don’t think there’s much appetite in Fort Belvoir and Fort Lee for fundamental reform of DCMA and DCAA—even though pretty much every DCAA and DCMA employee we speak with one-on-one acknowledges the real need for such fundamental reform.

And there are other barriers to achieving innovation that would need to be removed, fundamental barriers that go to the heart of Federal civil service. For example, there is a huge generation gap between the buyers at DCMA and the would-be sellers in Silicon Valley. Depending on which article you read, something like 55% of the DoD civilian workforce is over the age of 50 and eyeing retirement. In contrast, the vast majority of Silicon Valley entrepreneurs and cyber-coders is about half that age. How does one overcome that generational gap? That’s just one of the barriers between Northern Virginia and Silicon Valley. There are many more that we could list, if we were of a mind to do so (and if you had the patience to read them all). Indeed, we listed many of those barriers in our public remarks, and heard near-unanimous agreement from the audience—which included at least one senior DCMA employee.

But let’s assume for the sake of argument that those barriers can be overcome. Let’s assume that the Pentagon and Congress and OFPP and DCMA and DCAA all agree that doing business with Silicon Valley and accessing all that beautiful innovation and agility is worth the price of admission. As a result of that agreement, in our hypothetical scenario the stars align and special exemptions are carved-out for Silicon Valley companies that are willing to do business with the Pentagon.

Let’s discuss what the “price of admission” might be. Let’s discuss what statutory and regulatory exemptions might be waived for those innovative Silicon Valley companies the Pentagon has been wooing.

For those special companies—

• No requirement to submit cost or pricing data

• In fact, no proposal is required whatsoever because we’re talking partnership here

• No requirement to have an adequate accounting system

• No requirement to submit a proposal to establish final billing rates

• No business system requirements

• No cost allowability requirements

• No audits by DCAA whatsoever; instead, the external audit by an independent CPA firm will be acceptable

• Full funding obligated at time of award, even if the effort is expected to take more than one year

• No contracts awarded; instead, grants of money will be made with no contractual requirement to deliver anything in return. It will be “best efforts” only.

• No termination for default clauses, because failure is always an option

And that’s just for starters. As we see it, the foregoing list would be the bare minimum necessary to get the next Apple or Facebook or Google to starting playing ball with DoD.

But put all that aside for a minute and let’s just assume it all happens and there is now a beautiful win/win relationship between the entrepreneurs of Silicon Valley and the buying commands of DoD. Let’s just dream for a few moments.

In that dream, where and when does the innovation happen?

Does the innovation happen before award, where an amazingly agile Silicon Valley company comes to In-Q-Tel (or its equivalent) with an innovative idea? In this scenario, somebody pitches somebody else and the pitch is a story where a future capability is created. That capability sounds amazingly useful and so the Pentagon throws some money at the company, knowing all the while that the money may be wasted if the company can’t make its uber-cool innovative vision a reality.

Or does the Pentagon instead send its pitchpeople to Cupertino and environs with a need, a requirement, a notion of what might be amazingly cool and useful for the warfighters? Do they take a half-baked requirement or need from somebody, one that hasn’t been fully vetted or approved by an official Decision Authority (because obtaining that approval would take too long and involve too many bureaucrats), and try to sell it to a Silicon Valley company—any willing company—that might be in position to actualize the vision?

And do those pitchpeople then go from company to company, trying to interest somebody in spending taxpayer funds—knowing all the while that just to make each pitch requires the Silicon Valley company to execute a Non-Disclosure Agreement with the teeth of a raptor, since National Security is involved? In this scenario, the DoD folks schlep from business park to business park, from incubator to incubator, from office to office, until at long last they find the right people with the right skills—and the need for funds—to make it happen.

Is that how it works?

Because if that’s how it works, it’s going to take a lot more than market research and Requests for Information. Finding that marriage between need and capability, between requirement and willingness, is going to be a challenge. It can be done, of course, but it won’t be by any means currently found in the FAR.

We remain skeptical.

But if the innovation isn’t identified before award, maybe it happens during performance of planned work scope. Maybe the DoD awards a grant or a CRADA or a TAA to a company with a firm goal in mind, an SOW that specifically identifies the innovative item to be created. Let’s call this “planned innovation,” if you will. If that’s how it works, then the innovation is really found in the requirements planning phase, not performance, because in order to achieve innovation the end-users first need to know what they want, so they can put it under contract. We don’t really see that working out for anybody.

Moreover, if that’s how innovation works then you might as well issue solicitations and obtain competition, because if you can describe what you want to achieve, there’s a good chance multiple companies can design it for you. And there will be many companies willing to spend your taxpayer funds, even if they’re not located in Silicon Valley.

Is that how it works?

Because if that’s how it works, it looks and feels just like DoD development contracts today. And it will take just as long to achieve, and cost just as much. That can’t be the plan, can it?

But if the innovation isn’t identified before award and it’s not planned in the SOW, then maybe it happens unexpectedly during performance on a traditional development contract effort. Maybe DoD awards a grant or a CRADA or a TAA to a company with a firm goal in mind, but then sometime thereafter the company innovates: it invents the quintessential “better mousetrap” while performing against that contract vehicle. Then the company tells the DoD technical folks about it, and the technical folks tell the buyers and contracting folks. And then whatever the original Pentagon goal was is now history because an innovative idea has been found, one that makes the original goal less valuable and less worthy. So the original goal is jettisoned and the new goal is substituted in its place. Somebody writes a report and sends it up the line (to a central DoD Innovation Office, we presume).

And now everybody is happy. Innovation has been achieved and officially acknowledged!

And no other company protests that what just happened is a cardinal change that should have (by law) required a new procurement, with a new solicitation and a new source selection decision—and that failure to do all that violated the Competition on Contracting Act (CICA).

And of course, in this scenario, the Silicon Valley company (the innovator) willingly signs over its Intellectual Property because patriotism (and because of the original DoD funding). No lawyers get involved at this point. Nope.

And the Pentagon folks then take that IP and hand it over to a traditional defense contractor (after a solicitation, source evaluation, and source selection, of course) to productionize it. Or maybe the Pentagon says “urgent and compelling circumstances” or “national security” and foregoes the traditional competition, and just hands the IP over to Lockheed Martin or Boeing or Northrop Grumman (or any of the other big dogs) and says, “Make that.” And lo and behold, it is done.

Without complaint from Congress or the news media or the watchdog organizations.

Without complaint from the original innovator that their IP was just handed-over to somebody else, so that another company could make a profit from its original idea.

Um, yeah. Sure. Why not? Maybe it would work like that. Since we’re dreaming and all.

And in our dream nobody in the military service says, “Wait a minute. Our doctrine calls for ‘X’ and you stopped working on ‘X’ and now you’re working on ‘Y’—which is great in theory but we haven’t trained for it and we don’t know how to use it and, besides, that’s an initiative of that other branch of the military, which is not our branch, and so we don’t like it. And we won’t use it.”

Because this is all a dream, that won’t happen. No inter-service rivalry or focus on last year’s training and doctrine will impact the decision-making to adopt the new widget or cyber-weapon or whatever the “better mousetrap” turns out to be. (See our article on the DCGS vs. Paladin controversy, here.)

Yeah, none of that will happen.

Because, you know, innovation. It’s like a magic word that unlocks all doors and crosses all barriers.

Yeah, sure. In our dreams.

So as you can plainly see, we foresee lots of problems ahead. They are not insoluble problems, mind you. They can be solved with sufficient will and sufficient leadership. But make no mistake: they are tough challenges that will require fundamental changes to the current defense acquisition environment. Really fundamental changes that we don’t think the current bureaucrats and policy wonks have the will or the political capital to pull-off, no matter how lofty and desirable the prize.

Before any of those tough challenges can be tackled, before any of those fundamental changes can be enacted, we think the first step is to think through this whole innovation and agile development thingee—given that the word itself carries no magic and opens no doors and crosses no barriers. Before engaging in the quest for innovation, one should have a pretty firm idea as what it will look like when it’s achieved.

We think the first step is to answer some key questions, such as: What does innovation look like, and where does it show up in the acquisition lifecycle? We have attempted a thought experiment in this article in order to explore those questions. But we’re not the ones who have to answer them: the leaders in the Office of the Secretary of Defense have to provide the answers, and the strategic guidance that goes along with those answers.

Until those questions (and others) are answered, we strongly suspect the quest for Silicon Valley innovation is just another mythical quest, like searching for the Holy Grail. In this modern-day quest, the Pentagon bureaucrats and policy wonks will be starting their quest with no idea what the Holy Grail looks like. They’ll be looking for a needle in a haystack with no notion what a needle looks like, or what they would do with that needle, were they to be fortunate enough to find it.

And starting a quest with no notion as to how it will be achieved, and where and when the Holy Grail will be found, and no idea what the goal even looks like is fine. It’s just dandy. That’s what makes it a quest!

Unless you are using taxpayer funds. In which case, that quest starts to look and feel much like a boondoggle.

In our next article on innovation, instead of complaining all the time we will venture some ideas of our own as to how Silicon Valley innovation might be fostered. We will publish some notions as to how statutory and regulatory exemptions might be carved-out, and where in the acquisition process those carve-outs might occur.

Until then: innovate.

The National Defense Authorization Act (NDAA) of 2015 required the Government Accountability Office (GAO) to review the rulemaking process used by the Department of Defense (DoD or DOD) for promulgating acquisition-related rules—i.e., revisions to the Defense Federal Acquisition Regulation Supplement (DFARS). That GAO review was released on April 17, 2015.

According to the report’s letter of transmittal—

Our objectives were (1) to describe DOD’s current rulemaking procedures, including relevant provisions for notice and comment, for Defense Federal Acquisition Regulation Supplement (DFARS) rules; (2) to determine the frequency with which DOD issued final and interim rules without prior notice and comment during fiscal years 2010 through 2014; (3) to determine the most common justifications given by DOD when issuing final and interim DFARS rules without prior notice and comment; and (4) to identify methods cited by DOD for promoting constructive communication between DOD, the public, and the acquisition industry during rulemaking.

As readers know, from time to time we’ve been critical of the rulemaking process used by the DAR Council, as well as the Civilian Agency Acquisition Council (collectively, the FAR Councils). We’ve accused them of delaying the rulemaking process in order to create a false sense of urgency to meet a congressionally imposed deadline, of treating public comments with disdain and, in some cases, of ignoring public input altogether. Our sense of the DoD rulemaking process has been that there are certain constituencies within DoD that are driving the rulemaking regardless of any public input received.

Accordingly, we were very interested to read the GAO report and see if they reached the same conclusions we had.

Consequently, we were very disappointed to see that the GAO did not address our concerns.

It’s not really surprising, we guess. Look at the review objectives, quoted above. Where do they leave room for evaluating the DoD’s analyses or justifications? Where do they cover an evaluation of the efficacy of the “communication between DOD, the public, and the acquisition industry during rulemaking”? Answer: nowhere. The review scope and objectives seem to have been established in order to create the ability for the reviews to address the superficialities of the DoD rulemaking process without addressing any of its substance.

Based on the review objectives, why should we have been surprised or disappointed to learn that the GAO reviewers had no findings and no recommendations for improvement? Why should we have been surprised and disappointed to read the following—

Our review and analysis of the text of the 139 DFARS rules published without prior public comments identified two primary justifications cited by DOD for waiving the public comment requirement. For 49 of these 139 DFARS rules, DOD cited ‘urgent and compelling’ circumstances, most frequently because acquisition requirements either needed to be addressed immediately (or within a short-time frame) to comply with a statute. Specifically, DOD cited specific language within a statute that required immediate implementation of a defense acquisition requirement as the ‘urgent and compelling’ circumstance for 31 of these 49 DFARS rules. Another 49 of the 139 DFARS rules issued without prior public comment were not subject to public comments because DOD determined that the rules were non-substantive or non-significant. Specifically, DOD stated that 46 of the rules did not have significant effects beyond DOD’s internal operating procedures. The remaining 41 DFARS rules issued without public comments were technical amendments for which DOD did not provide justifications in the published rules, but which it also deemed to be non-substantive or non-significant.

As you read the foregoing paragraph, notice that the GAO reviewers simply accepted DoD’s analysis at face value. For example, the DAR Council rulemakers decided that there were “urgent and compelling circumstances” because of statutory deadlines, but GAO never addressed whether the rulemakers created those circumstances by intentionally or negligently delaying their internal processes. There was no analysis of milestone dates—e.g., when the statute was passed, when the DAR Council started the process, how fast the process moved, and when the decision issue the rule without public input was made. Those dates are, for the most part, easily obtainable. The GAO reviewers chose not to obtain them.

In a similar fashion, note the following paragraph—

DOD officials identified multiple efforts to provide opportunity for public and industry participation during the rulemaking process. For example, DOD provides several mechanisms--such as a web-based email account--for the public and industry officials to ask questions, recommend changes, or comment on DFARS rules. Based on our review of the relevant criteria for issuance of DFARS rules and our audit work, we have no specific recommendations for opportunities to improve constructive communications between DOD, the public, and the acquisition industry during rulemaking.

Note how superficial the analysis was. Note that the process was described without evaluating its efficacy. What does it profit the public to have multiple opportunities to participate in the rulemaking process if the rulemakers don’t accept the public’s input? Where is the analysis of how public comments were evaluated? How many rule changes were recommended via public input, but not accepted by the DAR Council? What were their justifications for not accepting the public’s input? Were those justifications valid?

All in all, a superficial GAO report that tells nobody anything of any substance. We were tempted to use the phrase “whitewash” but we don’t think the GAO reviewers had that goal in mind. We think they were just treating the statutory report requirement with the minimum effort.

Or else they were just lazy.